NBFC Registration in A comprehensive Guide  

Are you looking to establish a Non-Banking Financial Company (NBFC) in India? The process of NBFC registration can be complex, with numerous regulatory requirements and legal obligations to fulfill. At Enterslice, we specialize in providing NBFC registration services to guide you through the ERP-driven registration process and ensure adequate compliance with RBI Act 1934, Further, our Team has previously worked in serval large NBFCs and they are a familiar with RBI master direction applicable on NBFC. In this comprehensive guide, we will walk you through the steps involved in NBFC registration, explain the benefits of partnering with our firm, and answer common questions related to NBFCs. If you are engaged in the business of providing loans & advances, acquisition of shares/stocks/bonds/debentures/securities or other marketable securities of similar nature, leasing, hire-purchase, insurance business, Digital lending or co-lending and any other financing or investment then as per RBI guidelines on Principal business criteria (PBC), you will require to apply for NBFC certificate of registration with RBI.  

Table of Contents

Types of NBFCs based on their activity 

1. Investment and Credit Company (ICC):In Feb,2019 RBI announced a category Called ICC (Investment credit company) this was a new category announced post-merger of the assets finance company, loan company, and investment company into one single category called as ICC. This category represents highest number of NBFC in India and is commonly applied by entrepreneurs willing to enter the lending business. A finance company duly registered with RBI as NBFC (Non-financial company) and that does its principal business of financing, investment, Assets financing, traditional lending or digital lending. You can apply for NBFC license in category ICC and can carry multiple objects like MSME Financing, pay later, GST based financing, and personal loans. The minimum required net-owned fund required Rs. 10 Crores (Rs. 100 million) for the new application under this category of NBFC  

2. Mortgage Guarantee Company: A Mortgage Guarantee Company (MGC) is a type of non-banking financial intuition registered with Reserve bank of India that provides mortgage guarantee services to lenders, such as banks, other Category of NBFC and housing finance companies. The primary function of an MGC is to mitigate the credit risk associated with mortgage loans by providing a guarantee on the repayment of such loans to the lender in lieu of a fees.  

Mortgage Guarantee Company refers to financial institutions for which a minimum 90% of the business turnover is mortgage guarantee business or where a minimum 90% of the gross income is from mortgage guarantee business, and the net owned funds are 100 crore rupees. 

3. Infrastructure Finance Company- An Infrastructure Finance Company (IFC) is a specialized non-banking financial institution that primarily focuses on financing and promoting infrastructure projects in India. These companies play a crucial role in supporting the development and expansion of the country's infrastructure sector, which includes sectors such as transportation, energy, telecommunications, and urban development. IFC must deploys a minimum of 75% of its total assets in the infrastructure loans and has a minimum of net owned funds (NOF) of 300 crore rupees and a CRAR of 15%. 

4. Non-Operative Financial Holding Company (NOFHC)-It is a type of financial institution that enables a promoter group of promoters to set up a new bank. It is a wholly owned NOFHC that holds banks and other financial services companies regulated by Reserve Bank or other financial sector regulators to an extent permissible under the applicable regulatory prescription.  

5. Micro Finance Company- A Microfinance Company (MFC) is a non-banking financial company regulated under RBI act. 1934 that provides financial services, such as small loans, group loans, micro business loans to low-income individuals and small business owners who have limited or no access to traditional banking services. The primary goal of microfinance is to empower economically disadvantaged individuals and promote financial inclusion. Micro finance plays a vital role in financial inclusion program in India. MFI has interest rate restriction and other charges levied on loan are also regulated.  

6. Housing Finance Company:-HFCs or Housing Finance Companies are a type of NBFCs but regulated by reserve bank of India and supervised by the National Housing Bank (NHB). The NHB is a dedicated regulatory authority for housing finance institutions and formulates regulations, guidelines, and prudential norms to ensure their stability, customer protection, and sound lending practices. Many Housing Finance Companies in India are adopting digital technologies to streamline processes, enhance customer experience, and improve operational efficiency. Digital initiatives may include online loan application and approval, document submission, loan tracking, and customer self-service portals.  

Types of NBFCs based on their liabilities 

• Deposit-taking NBFCs:- Currently RBI is not allowing any new license in this category.  
• Non-Deposit Taking NBFCs: -It has two types of Type 1 without customer interface and Tye-2 with customer interface.  

Regulatory Structure of NBFC (Non-Banking Financial Company)  

On October 22, 2021, the Reserve Bank of India announced a scale-based revised regulatory framework for NBFCs with a view to having a tight oversight of the sector. As per the scale-based regulatory framework for Non-Banking Financial Companies, there will be more categories of NBFCs as per their activity with stringent rules. There will be a ceiling of 1 crore rupees per borrower for financing subscriptions to IPO. 

The regulatory structure of the NBFCs will include 4 layers:  

1. Base Layer-Comprising non-deposit taking NBFCs below asset size of 1000 crore rupees; NBFC-Peer to peer lending, NBFC- Account aggregator NOFHC, NBFCs without public funds and customer interface, non-deposit taking NBFCs (NBFC-ND) with asset size less than INR1,000 crore and certain government owned NBFCs.  
2. Middle Layer- Comprising all deposit-taking NBFCs, non-deposit-taking NBFCs with an asset size of 1000 crore rupees and more;  
3. Upper Layer- The top 10 eligible NBFCs in terms of asset size will reside in this layer; 
4. Top Layer- This layer can get populated if the regulator believes that there is a substantial increase in potential risk from specific NBFCs in the upper layer. The net owned fund requirement will be hiked for all NBFCs to 10 crore Rupees with certain exceptions-

NBFC Registration Process  

• Initial Consultation: We begin with an in-depth consultation to understand your business model, Founders vision and objectives. This enables us to devise a tailored roadmap for your NBFC registration journey.  
• Documentation and Preparation: Our team will assist you in gathering and organizing all the necessary documents required for the registration process, ensuring that you are fully prepared for submission of online application for NBFC and later our team will assist you in responding RBI queries and objections.  
• Regulatory Compliance: We will guide you through the various regulatory steps, ensuring that your NBFC complies with all relevant RBI master directions, RBI guidelines and regulations are up to date. Highly experienced team and along with a minimum of Rs. 10 crores net owned fund required in form of fixed deposit while submitting application for Nbfc registration with RBI.  
• Application Submission: With our expert assistance, your NBFC registration COR application will be prepared and submitted to the Reserve bank of India.  
• Regular consultation: We keep you informed at every stage of the process and follow up on your application's progress, promptly addressing any queries or feedback from the RBI department of non-banking regulation.  

Mandatory conditions for NBFC registration with RBI 

Before we submit application for COR (Certificate of registration with RBI) it is mandatory to comply with the below conditions -  

• NBFC Company Formation: The applicant must be a registered company under the Companies Act, 2013 (or earlier applicable acts) and possess a Certificate of Incorporation (CoI) issued by the Registrar of Companies (RoC) or alteration in the object and name of the existing company. In case you have an existing company and can prove 10 cores Net Worth.  The object clause specified in the Memorandum of Association must be in-line with the business plan. 
• Quality of Management - a minimum of 1/3 of the Directors should hold a minimum of 10 years of experience in Banking in the area of Credit and risk or retail banking, and such a person should be employed as a full-time Director. The directorsand key management personnel of the NBFC should be fit and proper individuals and 50% composition of directors must be Indian citizen with expertise and experience in the financial sector. They should not have a history of misconduct or involvement in loan fraud or regular delay in re-payment of loans to any NBFC/Banks.  
• Quality of Capital – The Applicant Company must meet the quality of capital requirement laid down by the The applicant must have a minimum Net Owned Fund Rs. 10 Crores as specified by the RBI. The NOF requirement varies based on the type of NBFC.
• Minimum Net Owned Fund (NOF): The applicant company must have a minimum Net Owned Fund of Rs. 10 Crores as specified by the RBI at time of submitting application before the RBI. As an Applicant you must note that only Tier-I Capital ranks as the highest quality capital as it is the shareholder capital of the NBFC. It consists of paid-up equity share capital, CCSPS (Compulsorily convertible preference shares), CCD (compulsorily convertible debentures), security premium in case of existing company willing to apply for nbfc registration. However, in case you are applying for NBFC P2P (Peer to peer lending license) or NBFC account aggregator license the minimum required NOF is still 2 crores.  
• NBFC Business Plan – submitting a comprehensive business plan for the next 5 years is important when applying for an NBFC license as it outlines your organization's objectives, strategies, financial projections, and risk management framework. While the specific requirements may vary.  
  1. Executive Summary 
  2. Business Overview 
  3. Market Analysis 
  4. Human resource plan  
  5. Credit and underwriting policies  
  6. Products analysis  
  7. Marketing and Customer Acquisition 
  8. Risk Management Framework 
  9. Company plan about the Audit and risk committee  
  10. Corporate Governance and Compliance 
  11. Financial Projections for next 5 years  
  12. Technology and Infrastructure 
  13. Exit Strategy and Future Growth 
• Credit history and Assets/Liability check – The applicant company will require to submit the credit history of the founders, shareholders and key managerial person. Along with the Networth certificate of the shareholders, highest education certificate as well business profile.  
• Principal Business Criteria: The principal business of the NBFC should be financial in nature, including lending, investment, asset finance, or any other activity specified by the RBI. At least more than 50% of the assets of the NBFC must be financial assets and income generated through the year should be more than 50% from Financial and investment activities. Interest on Fixed deposit is not the part of financial activity and in case violation with the principal business criteria right may cancel the NBFC license.
• Compliance with Prudential Norms: The applicant must adhere to prudential norms set by the RBI, which include regulations on capital adequacy, asset classification, provisioning, and exposure limits. These norms aim to ensure financial stability and risk management within the financial sector in India. 
• Anti-Money Laundering (AML) and Know Your Customer (KYC) Norms: The NBFC should have adequate systems and processes in place to comply with AML and KYC requirements. This includes implementing customer due diligence procedures, record-keeping of Video KYC, E-KYC, Aadhar Based KYC, E-signature, and reporting suspicious transactions to FIU (Financial intelligence unit)
• Grievance Redressal Mechanism: The NBFC must establish an effective customer support department and appoint one nodal office for addressing the customer grievances and should be a complete tech enabled workflow for tracking the complaints received from customers.   

Documents Required for NBFC Registration 

The following documents should be kept ready: 

• Company Incorporation Certificate; 
• Detailed information on management along with company brochure; 
• Copy of PAN/Corporate Identity Number (CIN) of the company; 
• Documents of the location/address; 
• A Certified copy of the Memorandum of Association & Articles of Association; 
• List of Directors' profiles which should be duly signed; 
• Qualification certificate of directors as well as their experience certificate; 
• CIBIL/credit reports of the Directors of the Company; 
• Board resolution on ‘Fair Practices Code’ and a certified copy of the same; 
• Certificate issued from the statutory auditor declaring that the company doesn’t hold any public deposit and does not accept it; 
• Certificate specifying owned funds on the date of the application from a Statutory Auditor;
• Shareholder KYC, CIBIL report, ITR and banker report; 
• Furnish information on the bank account, balances, loans, credits, etc.; 
• Audited balance sheet as well as P&L statement with the directors and auditor’s report of the last three years; 
• Self-certified copy of bank statement and ITR; 

NBFC Registration Procedure 

The process for the registration of NBFC is given below

1. Arranging the Documents: - It is important for the applicant to arrange all the relevant documents required to initiate the process of NBFC Registration. 
2. Filing the Application with RBI: - After arranging the relevant documents, the applicant must file the application with the authority.
3. Submission of Application and Documents for Verification:-The next step is the submission of the application along with the necessary documents by the applicant for the purpose of verification by the authority.The authority will verify the documents and application to check the accuracy of the submissions made by the applicant. 
4. Issue of Registration Certificate:-After successfully verifying the application and documents, the authority will issue the registration certificate.  

What is the difference between NBFC’s and Banks? 

There are several key differences between NBFCs (Non-Banking Financial Companies) and banks. While both entities are involved in financial activities and both are regulated by the reserve bank of India, Here are the key differences: 

• Regulatory Authority: Banks are regulated by the Reserve Bank of India (RBI) under the Banking Regulation Act, 1949. NBFCs, on the other hand, are regulated by the RBI under the Reserve Bank of India Act, 1934 and the guidelines specific to NBFCs. 
• Acceptance of on Demand Deposits: Banks are authorized by the RBI to accept on demand deposits from the public, which can be withdrawn on demand by the depositor. NBFCs are generally not allowed to accept demand deposits, except for certain specific types of NBFCs like NBFC-D (Deposit Accepting). 
• Lending and Borrowing: Both banks and NBFCs engage in lending and borrowing activities. However, banks have a broader range of lending capabilities and can create credit through the process of filtering through personal or corporate banking. NBFCs primarily rely on their own funds, borrowings from financial institutions, or issuance of debt instruments for lending activities.
• Payment and Settlement Systems: Banks have direct access to the payment and settlement systems operated by the RBI, such as Real-Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT). NBFCs typically use the banking channels or other payment systems to facilitate transactions. 
• Deposit Insurance: Bank deposits are typically covered by deposit insurance schemes like the Deposit Insurance and Credit Guarantee Corporation (DICGC) up to a certain limit. NBFC deposits are not covered under these deposit insurance schemes. 
• Prudential Norms: Banks have specific prudential norms, such as capital adequacy ratios, asset classification norms, provisioning requirements, and exposure limits that they must adhere to as per RBI regulations. NBFCs also have prudential norms, but they are soft and easy compared with those applicable to banks. 
• Ownership Structure: Banks are typically owned by shareholders, including individuals, corporations, and institutions, while some banks may be government owned. NBFCs can be privately owned or have a combination of ownership structures, including individuals, companies, or LLP or HUF.  

What is the Time frame for the NBFC Registration? 

The time frame for NBFC registration can vary based on several factors, including the completeness of documentation, regulatory processes, and the responsiveness of the applicant. Post 2022, the NBFC registration and as well NBFC takeover process has to qualify to several process and scrutiny at RBI level as well other financial authorities. 

1. Application Preparation: The initial step involves preparing the necessary documentation, including the application form, business plan, financial projections, and other supporting documents. This process can take several weeks or even months, depending on the complexity of the business and the availability of required information. In general, it takes 4(four) weeks Days. 
2. Submission of Application: Once the application is complete, it is submitted to the Reserve Bank of India (RBI), this stage may take 1 (one) week. 
3. Initial Scrutiny: The RBI conducts an initial scrutiny of the application to check for completeness and compliance with the regulatory guidelines. This stage may take 4(Four) weeks. 
4. Clarifications and Additional Information about the Applicant Company: During the scrutiny process, the RBI may direct for submitting the additional information or seek clarifications from the applicant. This question may with respect to the promoter's background, Quality of capital and business model.  
5. Background Verification: - The RBI conducts background verification checks on the directors, promoters, and key management personnel of the NBFC applicant. This process includes assessing their integrity, reputation, and financial soundness. On-Site Inspection: The RBI may conduct an on-site inspection of the applicant's office premises and systems to assess compliance with regulatory requirements. The duration of the inspection depends on the size and complexity of the operations. his stage may take 10(ten) weeks.
6. Grant of Certificate of Registration: Once the RBI is satisfied with the application, background checks, and inspection, it issues a Certificate of Registration. The time frame for the grant of the certificate can vary but is typically within 4-6 months after the completion of the necessary steps. 

Role of NBFCs in India 

In a nutshell, NBFCs have played a massive role in the development of the Indian economy in the following ways: 

• Mobilizing resources;
• Capital formation; 
• Employment generation
• Drawing foreign grants;
• Providing long-term credit and specialized credit;
• Ushering in finance to the country; 
• By deploying cutting-edge technology to make financial services accessible and affordable to all;
• Acting as an alternative to banks, it provides various services, from helping in investing in property and trading money market instruments to funding private education, among others. 

Common mistakes to avoid during NBFC registration?  

During NBFC registration Process, it is important to avoid certain common mistakes that can cause delays or rejection or return of NBFC Application.  

Here are some common mistakes to avoid: 

• Incomplete Documentation: In the most of case it is obverse that professionals or in-house accounts or legal team does not have prior experience of handling such complex process and submitting incomplete or inaccurate documentation is one of the most common mistakes which has led to rejection or return order from RBI. 
• Non-compliance oversight - in most cases it is observed that founders/shareholders have failed to disclose or clarify any valid reason of non-compliance with applicable laws in the past.
• Failure to Demonstrate Financial Viability: Inability to present realistic and well-supported financial projections can raise doubts about the financial viability of the NBFC. Ensure that your financial projections are based on sound assumptions and supported by thorough market research.
• Lack of Proper Due Diligence: Inadequate due diligence on the background of directors, promoters, and key management personnel can lead to delays or rejection of the application. Conduct thorough due diligence on individuals associated with the NBFC and ensure they meet the fit and proper criteria.
• Inaccurate or Incomplete Information: Providing inaccurate or incomplete information in the application can lead to delays or rejection. Double-check all the information provided and ensure its accuracy and completeness. 
• Failure to Seek Professional Guidance: Not seeking professional guidance from legal and financial experts can result in mistakes and omissions. Engage professionals with expertise in NBFC registration to ensure compliance and avoid common pitfalls. 
• Ignoring Regulatory Updates: Ignoring updates and changes in the regulatory framework can lead to non-compliance. Stay updated with the latest guidelines and regulations issued by the RBI throughout the registration process.
• Lack of Patience and Persistence: NBFC registration can be a time-consuming process. It is important to remain patient, persistent, and proactive in addressing any queries or requests for additional information from the RBI. 

Role of Technology in Transforming NBFC Operations 

Technology plays a crucial role in the growth and transformation of a NBFC and by adopting modern lending technology it is enhancing operational efficiency, improving customer experience, and enabling innovation.  

Here are some key roles of technology in transforming NBFCs: 

• Digitization of Processes: Technology enables the digitization of various processes, such as loan origination, underwriting, documentation, and loan servicing, Collection. Digitizing these processes reduces manual errors, speeds up processing times, and improves overall efficiency. 
• Automation and Workflow Management: Technology enables automation of repetitive tasks and workflow management, leading to streamlined operations and reduced processing time. Automated systems can handle tasks like data entry, document verification, and credit decisioning, freeing up human resources for more complex activities. 
• Data Analytics and Risk Assessment: Technology enables NBFCs to leverage data analytics tools and algorithms to gain insights from vast amounts of data. This helps in better risk assessment, credit scoring, fraud detection, and more accurate decision-making.
• Use of Mobile App:-Modern lending Technology allows NBFCs to offer online and mobile platforms for customer interactions, including loan applications, account management, and payment services. This enhances convenience, accessibility, and self-service capabilities for customers. 
• Robust Risk Management Systems: Technology facilitates the implementation of robust risk management systems, including real-time monitoring of credit risk, liquidity risk, and market risk. Advanced risk management tools and models enable NBFCs to assess, mitigate, and manage risks effectively.
• Enhanced Customer Experience: Technology enables NBFCs to deliver a seamless and personalized customer experience. This includes features like online loan applications, instant approvals, digital document submission, and personalized financial recommendations. Chabot’s and virtual assistants further enhance customer engagement and support. 
• Fintech Partnerships and Collaboration: NBFCs can collaborate with fintech companies to leverage their technology expertise and innovative solutions. Fintech partnerships enable NBFCs to access advanced lending platforms, data analytics capabilities, and other technological innovations to stay competitive and meet evolving customer expectations.
• Cybersecurity and Data Privacy: As technology adoption increases, ensuring robust cybersecurity measures and data privacy becomes critical for NBFCs. Implementing strong data encryption, multi-factor authentication, and regular security audits helps protect customer data and build trust. 
• Innovation and Product Development: Technology opens up opportunities for NBFCs to innovate and develop new financial products and services. This can include digital lending platforms, peer-to-peer lending, robo-advisory services, and other innovative offerings that cater to changing customer demands. 

RBI Digital Lending Guidelines for NBFC 

On 2^nd September 2022, RBI has issued Digital lending guidelines applicable to NBFCs and have directed several regulatory checks on NBFC and in digital lending business with LSP (lending service provider or Digital lending Apps the Entire onus of compliance has been set on the NBFC defined as regulated entity (RE) and NBFC must ensure they are diligently handling customer grievances.  The Reserve Bank of India (RBI) has issued guidelines to promote fair practices, transparency, and responsible lending. Here are the key points covered by the digital lending guidelines for NBFCs: 

1. Fair Practices and Disclosure:NBFCs engaged in digital lending should disclose all relevant information, including terms and conditions, interest rates, processing fees, and other charges, in a clear and transparent manner on their website or mobile application. 
2. Loan Agreement: The borrower should be provided with a loan agreement that clearly outlines the terms and conditions, including the interest rate, repayment schedule, applicable fees, and any additional charges. 
3. Reasonable charges: NBFCs should avoid excessive and multiple lending, ensuring that the borrower's repayment capacity is not compromised. 
4. Privacy and Data Security: NBFCs must ensure compliance with applicable data protection laws and maintain the privacy and confidentiality of customer data obtained through digital lending platforms. Adequate data security measures should be implemented to protect customer information from unauthorized access, data breaches, and cyber threats. 
5. Grievance Redressal System - Prior consent of the borrower should be obtained before accessing their personal and financial information from external sources. An effective grievance redressal mechanism should be established to address customer complaints and disputes in a timely and transparent manner. 
6. Outsourcing guidelines: NBFCs should exercise due diligence while outsourcing any activities related to digital lending and ensure that the service provider adheres to the same standards of consumer protection and data security. 
7. Fair Collection practices:  NBFC should be fair, respectful, and in compliance with the applicable laws and regulations. Harassment or use of undue influence for loan recovery should be strictly prohibited. 
8. NBFC Aggregators: NBFCs using digital lending platforms operated by intermediaries or NBFC aggregators should ensure that the aggregator is registered with the RBI and complies with all applicable regulations. 

NBFC’s Related Services Offered by Enterslice  

• Customized NBFC Registration Solutions: Tailored to Your Business Needs, Whether you are an Indian entrepreneur or foreigner, we have 20+ Years of experience in regulatory consulting helped over 500+ NBFC till now in securing NBFC licenses as well as helping them scale to a billion-dollar company.
• NBFC Licensing Made Easy: Simplifying the Regulatory Process 
• Comprehensive NBFC Compliance Services: Stay on Top of Regulations 
• Expert Advisory for NBFC Formation: Navigating the Legal Landscape
• NBFC Audits and Reporting: Ensuring Transparency and Accountability 
• NBFC Risk Management Solutions: Safeguarding Your Financial Future 
• NBFC Loan Syndication Services: Facilitating Capital Acquisition 
• NBFC Investment Advisory: Smart Strategies for Maximizing Returns 
• NBFC Portfolio Diversification: Unlocking Financial Opportunities
• NBFC Asset Reconstruction Services: Resolving Non-Performing Assets 
• NBFC Merger and Acquisition Support: Expanding Your Reach 
• NBFC Taxation and Accounting: Optimizing Financial Efficiency
• NBFC Technology Solutions: Innovating for Operational Excellence 
• NBFC Regulatory Updates and Training: Staying Informed and Compliant 
• NBFC Dispute Resolution Services: Resolving Financial Conflicts